Friday, April 21, 2006

Stocktakes: Pistols at dawn

By Liam Dann

On the face of it, the Government's proposed tax changes seem terribly complicated and yawn-inducing.

Thank heavens then for the bare-knuckle brawl that has erupted between Guinness Peat Group's Tony Gibbs and Revenue Minister Peter Dunne. On a level playing field (such as a back alley), I'd put my money on Gibbs.

The New Zealand GPG chief might look like Father Christmas but is probably better suited in the fancy dress of a gnarly pirate captain.

But neither man is afraid of a good scrap - as anyone who saw Dunne rip into Mark Sainsbury on election night will know.

A pitched email battle was fought in public last week. Gibbs fired the first shot claiming the tax proposals unfairly penalised investors in GPG. He said they might even force the company to move offshore.

In response, Dunne just stopped short of claiming that Gibbs' pants were on fire - describing his critique of the tax proposal as "misleading - bordering on untrue".

After all, GPG, which is registered in the UK, was hardly a New Zealand company.

That really got Gibbs' goat.

He promptly fired off a message from his personal email account - kindly sharing his contact list with us all (well probably his B list as it didn't include Sir Ron). "Respectfully, the minister does not appear to understand the impact of his own proposals," Gibbs wrote through (one imagines) clenched teeth.

Another GPG statement turned up on the the NZX website on Tuesday with similarly heavy undertones. "The ministers should be careful in suggesting that others are making statements which are misleading - bordering on untrue," it warned.

None of this gets to the bottom of who is right or wrong, of course (we'll leave that to the likes of Brian Gaynor tomorrow), but it makes for an entertaining sideshow.

Frothy proposition

Foster's A$750 million ($900 million) sale of its beer brand in Europe last week raises questions about what the Australian brewer plans to do with the cash. Foster's says it will use the proceeds to pay down debt but the sale undoubtedly gives it a bit more firepower on the balance sheet - a bit more ammunition to buy Michael Erceg's Independent Distillers perhaps? The Australian brewer had a strong enough balance sheet to be able to make the purchase without the sale, but the extra cash could make any purchase that much easier. Foster's has failed to break the dominance of DB and Lion, the two incumbents in New Zealand. Getting its hands on Independent's distribution channels could help overcome this.

Mirror market

CMC Markets has set up shop here.

The UK-based firm - which is expanding its Aussie operation - specialises in contracts for difference (CFD) trading. CFDs are one of those weird and wonderful financial products that offer adventurous investors the chance to make maximum profits for minimum outlay. Of course, like most things the opportunity comes with an equal-sized portion of risk. Basically, CFDs are virtual stock which mirror the real sharemarket and allow punters to gamble on the rises and falls of a stock without actually buying it.

Typically, investors pay a small percentage of the actual share price up front. The profits and losses are full sized of course and the full value of the share is paid when the shares are cashed in. Although they are still a fringe investment product in this part of the world, their popularity does seem to be growing. A company called OMF Financial also offers CFD contracts here.

Research head

Also on the brokerage front, CitiGroup has responded to speculation in this column about the future of its research department. Yes, they were facing some big decisions after the departure of the local research head, Mark Benseman, for ABN AMRO. But Citi local chief Mark Fitzgerald says they are committed to growing in this market. They've appointed Andy Bowley - a Kiwi returning home after three years as a senior member of the consumer and beverage team at CSFB in London. He will lead CitiGroup's team of four analysts.

Swipe that

It's been a good month for Provenco and Cadmus - both listed sellers of electronic payment solutions. The companies have done some interesting deals - Cadmus with taxi drivers in Singapore and Provenco with a petrol company in India - and look likely to benefit from the lower dollar as they clock up US dollar sales. Cadmus also seems to be making good progress in setting up a finance division.

But the good news has done little to inspire the kind of share price rallies that other exporters have seen this year.

Cadmus closed at 22c yesterday down 1c since the start of the year. Provenco closed at 81c yesterday up just 6c since the start of the year.

Shining path

Always a sticky topic, the resin business (ba dum-ching). But Nuplex Industries seems to have a bit of a shine to it right now. Goldman Sachs JBWere has upgraded its short-term outlook for the stock on the basis of five positive catalysts.

Interestingly, Goldman is picking the strongest driver to be lower raw material costs - that's basically lower crude oil prices - a big call given the soaring price of the past few weeks.

The broker's oil analysts estimate that oil prices will recede through the second half of this year and 2007/08 so that crude oil - now more than US$73 a barrel - will be at US$30 a barrel by 2009.

The local analysts, drawing on the research of the US parent company, concede that looks rather optimistic right now with the Iran stand-off hanging over the industry like a mushroom cloud. But they say Nuplex is in an increasingly strong position to pass on short-term price rises to customers.

Prices for other important chemical ingredients are also expected to fall in the next year.

Add to that mix a further weakening of the kiwi dollar, increased demand in its export markets and a renewed focus on its core business and the business is looking significantly under-valued. In fact, the analysts have put a value of $6.74 on the stock - it closed at $5.86 yesterday.

TV or net TV...

... Was that the question? In its latest report on Sky TV, the Forsyth Barr research team barely conceals its contempt for the TVNZ/TV3/BCL free-to-air (FTA) digital plans. the report recognises there will be some negative impact on Sky's stock from the falling dollar - foreign programmes just got more expensive - but dismisses the commercial threat posed by the potential digital rival.

"We believe the proposed FTA digital service will fail," the report says. "BCL's move to launch a competing satellite service with an inferior product is a backward step not a forward move and will cost them and, ultimately, the tax-payers money."

Forsyth Barr is picking that state-owned transmission company BCL will bear the brunt of the risk from the venture.